Indebted Elbit Imaging Bleeds Cash as Creditor Battle Rages

With NIS 2.2 billion in bond debt and another NIS 300 million owed to banks, Motti Zisser’s company has been in default on its payments since February

With NIS 2.2 billion in bond debt and another NIS 300 million owed to banks, Moti Zisser’s Elbit Imaging has been in default on its payments since February as the company’s management attempts to forge a debt restructuring, and give it a chance to divest its global property portfolio.

Elbit Imaging management is faced with a number of adversaries, including three bondholder groups and two funds, York Capital Management Global Advisors of the UNited States and Davidson Kempner ‏(DK‏) Capital Management, operating in unison.

The two funds hold a decisive position because theY own more than a third of Elbit Imaging debt. Zisser, still running the company, is also contributing to the noise in the background. The multitude of factions participating in the melee presents an obstacle to formulating a settlement and is consuming a lot of time and money. Bank Hapoalim, for instance, wants Zisser to leave the company.
TheMarker has learned that Elbit Imaging has already spent over NIS 1 million in payments to those operating on behalf of the bondholder representatives. York, which is represented in Israel by Jeremy Blank, has therefore asked the bond trustees to convene bondholders so that they can appoint a single group to represent them all in common.

“York and DK are attempting to pursue a different approach that is new for the Israeli capital market,” a source this week privy to the settlement talks told TheMarker on condition of anonymity.

Shares of Elbit Imaging fell 7.3% to NIS 7.85 in Telk Aviv Stock Exchange trading yesterday, although they have risen nearly 21% so far this year. Elbit’s bonds rose, with its Series Vav rising 1.5%.

“They are trying to transform highly leveraged holding companies like Elbit Imaging and IDB Holding into healthy companies. This is a new philosophy, one that is foreign to Israeli investors. Jeremy Blank is an expert in rehabilitating struggling companies. He will do it by fixing its balance sheet and drastically reducing its leverage,” says the source.

‘Terrible proposal’

Blank believes that the correct route would be for bondholders to swap most of their NIS 2.2 billion debt for 85% of its stock, giving them control of the company and enabling them to take responsibility for the company’s property assets.
The representative group of Series Gimmel through Zayin [bonds] suggested leaving the company with debts of NIS 1.5 billion, according to the source.

“This is a terrible proposal because the company won’t be able to repay its debt and within a few months will be forced into another restructuring. This way it doesn’t have a chance of upgrading its assets,” he says. “York and DK had a better idea. They propose leaving the company with debt of just NIS 300 million so that it can gradually divest its assets without any pressure.”

Such a restructuring would leave York holding 17% of Elbit Imaging shares, with the other institutional investors having more than 50% altogether. Many of the institutions would be left with over 5% each in the company’s shares.
Yesterday, Elbit Imaging asked the court to approve a meeting of creditors to vote on the plan devised by York and DK.

“The problem Elbit faces is one of cash flow that is due, among other things, to the fact that Elbit is prevented, out of concern for its creditors, from divesting quickly − potentially valuable assets that are in the process of being upgraded.”
Elbit said that as part of the restructuring it is seeking, its current management and board of directors would be entitled to options equal to 15% to 20% of equity.

“Blank isn’t going to perform interested party transactions like other Israeli businessmen,” says the insider. “I can’t understand why they’re so afraid of him. He’s always treated like he represents a foreign fund, but he’s in fact Israeli now, an Israeli who manages $15 billion for others. York and DK have no interest in taking over control to teach Zisser a lesson, they only want to rehabilitate the company for the good of all its creditors. “The current bondholder representative groups are just wasting money,” says the insider.

“The leading group of all hasn’t achieved a thing until now. They only deal with what’s written about them in the newspaper. They don’t think about the good of the bondholders. Members of the representative groups don’t have a direct channel to the company and don’t talk to Bank Hapoalim, the biggest creditor. They’re mainly involved in scuffling with York and DK.”

Yosi Zliger